The Consumer Bureau works for servicemembers
The Consumer Financial Protection Bureau has an Office of Servicemember Affairs to financially protect those that serve our country. Active duty servicemembers, those returning from duty, and their families are financial targets for a few reasons: They receive regular paychecks, are subject to sudden deployments and relocations, and the availability of online military records can make it easy to gain access to the personal history of veterans.
We’re happy to know that the CFPB has this office and creates new rules to financially protect those that protect us.
Praise from senior enlisted leaders in our armed forces
Top military officers are praising the CFPB for working on behalf of veterans and service members. Senior enlisted leaders appeared at a hearing of the Senate Armed Services Personnel Subcommittee to make the case that the Consumer Bureau has aided those in the military, veterans and their families.
“I know that our sailors think about when they get the calls from debt collectors, they think about mortgages, and they think about interest rates,” Master Chief Petty Officer of the Navy Steven Giordano told the subcommittee. “We continue a weekly battle rhythm with the office to continue to figure out any support that can be provided in the realm of financial literacy.”
What are my rights under the Military Lending Act?
The Military Lending Act (MLA) says that you can’t be charged an interest rate higher than 36 percent on most types of consumer loans and provides other significant rights. The MLA applies to active-duty servicemembers (including those on active Guard or active Reserve duty) and covered dependents.
Your rights under the MLA include:
- A 36 percent interest cap. You can’t be charged more than a 36% Military Annual Percentage Rate (MAPR), which includes the following costs in calculating your interest rate (with some exceptions):
- Finance charges
- Credit insurance premiums or fees
- Add-on products sold in connection with the credit
- Other fees like application or participation fees, with some exceptions
Strengthening the Military Lending Act
In 2015, the Department of Defense (DOD) updated Military Lending Act rules, closing harmful loopholes to better protect our troops and their families from financial abuse. Payday lenders and others of their ilk carved loopholes in the Military Lending Act of 2007. The Pentagon’s proposed amendments have made a big difference in closing loopholes and expanding the coverage of the law’s protections. As Director Cordray explains:
“As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes in the rule to prey on members of the military. They lurk right outside of military bases, offering loans that fall just beyond the parameters of the current rule. This proposal would shut down the predatory lending to the military that has flourished through exploiting legal technicalities. By broadening the types of credit covered under the law, this proposal would carry out the will of Congress by enabling the CFPB to stop lenders from harming servicemembers in ways the law was intended to stop.”
Unfair financial practices that harm military families don’t simply hurt individuals, as if that weren’t bad enough. If soldiers and sailors are worried about financial problems at home, unit preparedness and “operational readiness” are harmed. Worse, servicemembers who owe unpaid debts see their credit reports and credit scores harmed, which can result in loss of security clearances, which harms unit preparedness even more. As the CFPB’s Assistant Director for Servicemember Affairs Holly Petraeus explains:
“I commend Secretary Hagel for taking this important step to make the Military Lending Act more effective. High-interest loans to the military have been a problem for many years. This problem reached a crisis as payday and other lenders began thronging outside the gates of military installations in ever-increasing numbers. In 2006, Congress acted against this threat to military financial and operational readiness by passing the Military Lending Act. This law was designed to protect active-duty servicemembers and their families from high-cost loans by capping rates at 36 percent. Unfortunately, less than a decade after that law was passed, those who would profit by charging exorbitant rates to the military have found it all too easy to evade the original intention of the Military Lending Act. Taking advantage of loopholes, lenders have continued to charge military families annual percentage rates as high as 500 percent.”
For too long, predatory loans have trapped some members of our military in an endless cycle of debt, adding financial strains to families that already bear the burden of defending our country. By distracting our troops with financial challenges or forcing them to leave military service to pay off debts, these abusive loans negatively impact military readiness.
Additional resources
If you or someone you know is a servicemember, veteran or family member, the CFPB has additional resources to plan for the future and protect their finances.
